Super idea to fund fight against climate crisis

AS THE din fades from white to red over Prime Minister Kevin Rudd's spectacularly unimpressive Carbon Pollution Reduction Scheme, there is hope.

A recent Quarterly Essay piece — "Now or Never" by Tim Flannery — is just about the most moving essay on climate change written. I found only one instance where our views violently differ, captured as Flannery loosely remarks that for the once peaceful and remote indigenes of the tropics, "Both good and bad things come from joining the global community, yet none of this should prevent us from reaching out to our fellow humans and assisting them to ascend the first rung on the ladder to a better life".

Surely entering the capitalist system that has led us into a "climate crisis" would not necessarily result in a "better life" for the indigenous people of the tropics? Regardless, it seems they have no choice.

And yet nothing clouds the essay's punch: Flannery has laid down a polemic with grave implications and challenges for Australia. One politician owes it to all Australians to respond — a federal minister who arguably presides over the most potent portfolio in tackling the climate crisis: Senator Nick Sherry, Minister for Superannuation and Corporate Law.

As Flannery outlines, the most obvious solutions presented to Australia need major investment, foresight and innovation. Fortuitously, Flannery et al are well placed to alleviate the present lack of understanding about climate science — as Now or Never demonstrates. The other two rocks in the road are somewhat harder to displace.

The Government's response so far has been "pathetic". Although I contend that the level of neglect is far more systemic than does Flannery: the lack of "political will and leadership" is in fact one of the chief causes of the "limitations of our economic system".

Businesses will require investment capital to fund these projects. Australia's opportunity here is unique and promising: at $1.4 trillion, Australia has the fourth-largest investment market in the world — thanks largely to the 9 per cent employee superannuation guarantee. Super funds control about 75 per cent of Australia's investment capital and will do so while this compulsory system remains.

It will therefore be fundamental to any government response to the climate crisis that super funds exert their influence over the investment markets, as well as the economy as a whole, to ensure the sustainability of their investments.

For instance, while corporate environmental reporting is key to any national carbon pollution reduction scheme, the investment markets would heighten any scheme's effectiveness by recognising sustainability drivers in their decision-making, as well as further influencing corporate strategy and competitiveness.

With a firmer understanding of the likely impact of climate change and a price on carbon emissions imminent, issues relating to the environmental and social sustainability of assets are coming into view for institutional investors. Though this is a significant shift — and one that tackles many of the "limitations of our economic system" — it is occurring with little to no help from the Government. For instance, there remains an absence of any explicit reference to environmental or social considerations in investment trust law that governs super funds, and so the courts have repeatedly ruled against trustees who have made decisions based on so-called "non-financial" criteria. The burden of proof has been on demonstrating how these factors may have a material (financial) impact on the value of an investment portfolio.

This legal impediment has arguably stymied progressive funding of environmentally and socially sustainable initiatives. As is the case with most of Australia's government investment funds, it is unclear whether the $64 billion Future Fund will follow international best practice and make any public commitments to consider extra-financial factors such as climate change as relevant to its investments.

Sherry must elevate the rhetoric into a statement that is enshrined in statute. If he doesn't, given Rudd's announced Carbon Pollution Reduction Scheme, the Australian economy is unlikely to realise any of the solutions Flannery cautions we must move towards.

Nicholas Taylor formed Outcrop to offer independent advice and research on environmental, social and economic issues. In 2007, Taylor won the inaugural ESG Research award at the Australian Sustainability Awards. Email: nicholas@outcrop.com.au